SM- P<>--f»v - 2-

Case Fourteen

Pantaloon Retail (India) Ltd.

Fighting For New Space As Global
Competition Comes Home

Arun Kumar Jain I -

Affiliate professor of Strategy, IB and Corporate Governance, EM Strasbourg
School of Business (FranCe) and Nidhi Jain, Research Associate CALIC - Germany
rates (49% in 2006) over the past 4 years. Thus.
Retail is one oflndi<i's,fastest growing industries. It Retail presents an enonnous growth opportunity
is growing at 9% per annum in value terms which in the coming few years which explains why do--.
is beaten by only Indonesia in the world. _India mestic heavyweights like Reliance, Bharti, AVB
presents a retail market of over USS 300 billIon by Group, etc as well as global giants like Wal~Mart.
2016. The industry is highly fragmented presently, Teseo, Carrefour etC. are announcing forays into
with organized retail accounting for only 3% of the sector. As the industry .landseape gets fiercely
the retail market in value terms. However, this is
competitive, there is a lot of uncertainty about how
expected to go up to 20% in the next 3 years.
the sector would shape up in future; a lot of it de-
Until 200t, retIDl had been largely unorgati•
pends on how the players are able to exploit this
ized. With sustained economic growth and easing
regularization: the country witnessed increased opportunity "andimplement right strategies to win
consumerism, giving a boost to the organized re- the race.
tail seCtor which has clocked astounding growth ass
'The case is p,ep,,9d only fo' ciassmom diSCUssion P",poses and nollo .,ilieila Iha p,oc of admin;sl,.-
we decision.making or actual decisions at the company. Copyright Arun Kumar Jain@2009.

Exhibit 1 PRIL's Lines of Business
-
FoOO
IJEB:s & MusK:
-Beauty
aaAltlSS
india'S economy is on the fulcrum of an ever
I •••• e:asiug growth curve. With positive indicators
-=It 2S a stable 8-9 per cent annual growth, rising
hrign exchange reserves of close to US$ 250 bit.
ioo.. the Government estimating FDI flow of US$
12 billion in next 2-3 fiscal years and a more than
35 ptt rent surge in exports, India is likely to be a
biiog destination for foreign investment.
The boom in economy has resulted in crea-
tion. of jobs in the services sectQr and translated
iotD imttased personal disposable incomes. The
image of organized retail goes hand-in.hand with
nueased westernization of Indian culture and a
~ shopping experience becoming one of the
fuctors in the consumer's psyche.
Pantaloon Retail India Ltd (pRJL) is India's
first big country-wide retailer. Headquartered in
~mnbai, the company operates through 3.5 mil-
lion square feet of retail space and has over 100+
stores in 30+ cities in India. The company owns
and manages multiple retail formats catering to
a wide cross-section of the Indian society and its
width and depth of merchandise helps it capture
abnost the entire consumption basket of the In-
dian consumer. In 1987 it \\1\5 established by Mr.
Kishore Biyani to manufacture and sell trousers
for men using Pantaloons as the brand name and
christened as Manz Wear Pvt Ltd. In 1992 it went
public and changed its name to Pantaloon Fash-
ions (India). The name was again changed to
Pantaloon Retail (India) Ltd. to reflect more
Pantaloon Retail (India) Ltd .. C-229
closely to its core l?usiness: 200 1 was the year to
venture into the hypennarket sector by setting up
its Big Bazaar hypennarket in Kolkata.In 2006 it
opted for a new identity, bringing all its businesses
under the Future Group.
Pantaloon (PRJL) is attempting to create a
dominant presence in every retail format and eve-
ry product category for every kind of consumer
and be present everywhere in India.
PR.IU;Products & Services are shown in Exhibit I.
ENVIRONMENT FOR
RETAIL IN INDIA
Population projections of th~ PlaJUlingCommis-
sion of India suggest that the share of the working
age population (15-64 years) in total population
wilt grow from the current 59 per cent to about
65 per cent, translating into 882 million pairs of
hands by year 2020. According to the Vision 2020
document of the Planning Conunission of India,
the country will witness continued urbanization.
The urban population is expected to rise from 28
per cent to 40 per cent oftotal population by 2020.
Future growth is likely to be concentrated in and
around 60 to 70 large cities having a population of
C-230 Crafting and Executing Strategy

one million or more. This profile of concentrated
urbanpopularion .will facilitate multiple-format
offerings by companies in the organized retail in~
dustry. On an average, 30-40 million people are
joining the middle class every year, representing
huge consumption spending.
The Government regulations allow 100 per
cent POI in cash and carry through automatic
route and 51 per cent in single brand. Besides, the
franchise route is available for big operators. Now,
the Government also proposes further liberaliza.
tion in the retail sector allowing 51 per cent POI in .
consumer electronics and sports goods.
At present PRIL is the market leader in the
organized retail segment in India. In retail value
sales, it had 0.25% market share in 2006, well
ahead of the second placed LG Electronics.
Pantaloon Retail India ltd also had the most ex-
pansive spread in terms of presence across different
fonnats and/or channels (See Annexure I and 2).
Exhibit 2 Competitive Position 2006
SouI'C'6: Euromonilor International from trade press
Existing Retail Players in
India
----
Beii:l.ghighly fragmented at the moment, the retail
industry with the top 25 players, accounts for less
than 2% of the total retailing value sales. Panta-
loon with a market share of 0.25% is the market
leader and is way ahead of the other competitors
(Exhibit 4). Where firms like Shoppers' Stop oper-
ate in Lifestyle Retailing only. Pantaloo~ follows a
prudent mix of Lifestyle and Value Retailing.

Exhibit 3

_ Vah •• RtfailiDg Same S1Ol'eGrowth

SO'. _ Lifo:stylc Rctailin, SlUDC'SlOrCGrowth

40%

30%
i
•, Exhibit 4 Retailing Company Shares (% Value 2004-00)
Source: Euromanilor International Irom trade press.
Pantaloon is placed comfortably in the retail
market vis-a-vis the existing players, largely be~
cause of the scale and the multiple fannars that
it O~rates in. The threat of the new entrants
poses (he biggest challenge to Pantaloon. AI.
though, the industry is growing and at the same
time the market is expanding, when a new play_
er like Reliance Retail (RR) enters the industry,
it will first eat up into Pantaloon's market share
(Exhibit 5). RR has been expanding rapidly and
then there -are other big players such as Wal-
Man, reseo Carrefour, expected to enter as
t
and when the government pOlicy eases FOr in
Exhibit 5 Pantaloon Vs Reliance
Pantaloon Retail (India) ltd. C~2J I
':"
Retail Wal-Mart has already collaborated with
Bhatti to open a chain of stores, .
A comparison between Pantaloon and Reli_
ance Retail reveals the kind of competition Panta-
loon will be 'up against within the next two years
(Exhibit 5-6).. Traditionally, the buyer-supplier
relatioru;bip in India has been in favour of sup.
pliers. But the emergence of organized retail has
tilted power in favor of retailers. For example, a
retailer like Wal-Mari with sales of Over$350 bil.
lion sells more P&G Products than the entire sales
of the finn in Japan. This is wba[ gives W~I-Mart
C-232 Crafting and Executing.Strategy

Exhibit 6 Pantaloon Vs Reliance

18
16

I'
12
10

,
8

4
2
o
No.ofSlores Employcoe Strength
• Investment OuIlay Targe! Turnover by (in lalr.b)
('000 Cr) 2010 (0000 Cr) (x 100)

D Reliance retail • PantalOOTlmail

Source: Retailing Fast Forward:

http.'lIindiaaidcshQw.com/llM61es!74,hrm

its teeth and enables it to dictate terms to its sup-
pliers. In India, Pantaloon has been able to do the
same by achieving the size and the scale. Not long
ago, it asked suppliers like P&G, Marico, etc., to
reduce prices by 5% in its stores. With more big
players commg into the sector, the supplier bar-
gaining power will further diminish.
Changing Profile of Indian
Customers
Indian economy has been growing at a healthy rate .
for the last few years. This has led to the emer-
gence of a new urban class. The profile of the
Indian shoppers has been changing over the

Exhibit 7 Sales in Retailing by'Sector (Rs bn): Value 2001-2006

;~}.i
6,392,1 !:
6,360.4 ;';
~5.536.3r
. .,::..
2,824.1.':~
31i '£
.+ - t- "

.~. "::'--
. 3.2 .~
7.3 ~.
, - 212 ..
...,16.2

Source: Official statislics, Trade associalions. Trade press, Company research, Tra<kt interviews, Euromonilor InternaliOOal
estlmales '

years. Most of the Pantaloon's retail fonnats are
tu&ening the middle class segment of the iridian
society. The disposable income in this segment
has been increasing at a fast pace. The customers
today are more aware and they are dictating the
terms at the retail stores.
This segment would comprise the Non~store~
based Retailers .and etai/ers. In value terms, this
qux:nt is very small at present (see Exhibit 7),
..-n
-.:I does not pose a big threat to the fonnalS in
Pantaloon is operating at the moment. .
Futnre Prospects for Pantaloon
Based on the above analysis, the short term pros-
pects of Pantaloon would not be affected as the
existing players do not pose a significant threat to
it. But it is the new entrants like Reliance Retail,
Exhibit 8 Size of Market in Different Categories
The 5350 billion Con~umptior6penchngthe$lngle bi!l':lWbusllll'» .
QPI)ortunit)in rl'ld~ and" diYldedin[Qsomekeycat~1ed
andno~ P'"oouet
Pantaloon Retail (India) Ltd. C-233
Bhatti and Aditya BirJa Retail among the domestic
players and the likes ofWal-Mart, Tesco,who pose
the greatest challenge to Pantaloon. To maintain
it's current level of growth and profitability, Panta-
loon would need to either match them in scale or
foUowa strategy where it vo'Ould position itself as
a niche player. . '.
In view of the opportunities that the industry
offers, all the retail finDs in India are looking at
expansio~ especially. into tier II 'and tier III cit-
ies where the customer base is largely. lUltapped.
Also, firms like Reliance and Pantaloon are trying
to acquire smaller but well established brands like
Subhiksha and Nilgiris, This might lead to a con-
solidation of the retail industry,
While political compulsions have kept 1000/0
FDI away, global giants have taken the N' route.
Wal-Mart haS announced its entry through a tie-up
with Bhatti and Woolworth has entered into a N
fu India
by food. fashion
. C-234 Crafting and Executing Suategy
with Tatas.Tesco is also finalizing its N partner. In-
dian organized retail is thos'well on track to become
aUSD 35bn opportunity on the back of USD25bn
of iaveslnlents ~iitedup over the next fot!r yeats,
Also; companies'realIze that to remain com-
petitive,.;they' will need to bring down the total
operation costs. For this, t}1ecompanies are trying
to enhance their supply 'Chain efficienCy.Compa-
nies ~re also experimenting w'ith'different formats
in'o!der~,tij:~ a I~ger sha:feofth~ co~ers'
waneL ~ile ;hypqtrij!rkets continue to ~ the key
.f~rina~ playerS'are F$lpidlyramping .uP their reach
in Segirients like jeWelry~home solutions, specialty
wear. electronics. beauty and healthcarc, airpOrt
retailing, catalogue reiailhlg, et;c.. : ".
Pantaloon Retail Limited operates bOth in the
value ~tailing in4ustry and the lifestyle retailing
industry; The .value retailing industry traditionally
consisted of the following players operating in the
value chain-supplier, manufacturer" distributor,
retailer and the customer.
The main difference between the traditional
Indian value chain and the value chain in devel-
oped cOWltries is the presence of the distribu-
tor (Exhibit 9). Retailing in the United States is
largely consolidated, with large chains buying
consumer goods from most manufacturers, This
consolidation gives retailers sufficient scale so
that the introduction of an intermediary such as
a distributor does little to reduce costs and may
actually increase costs because of an additioni\1
transaction. In contrast, India has millions of small
retailers. The small size of Indian outlets limits the
amount of inventory they can hold, thus requiring
Exhibit 9 Traditional Retail Value Chain
2 'Pantaloon; Reliance set 10 forayinto wholesale trade'
Source: http://economictimes.indialimes.comiarticteshowf1486521
frequent replenishment. The only way for a manu.
facturcr to keep transportation costs low is to bring
full truckloads of product close to the market and
then distribute locally. Distributors in India also
handle collections, because their cost of collection
is significantly lower than the cost of manufactur-
ers collecting directly from retailers.
However, with the development of organised
retail in India, retailers have achieved sufficient
scale to deal directly with manufacturers. So the
current industry level value chain for the organ-
ized retail industry in India is (Exhibit 10):
Modern.retail formats are trying to build up
efficiencies in the sourcing system to cut costs
drastically by eliminating the distributor in the
system. Large distributors typically claim a mar-
gin of 5-6% and the savings from eliminating the
distributor will help lift margins for the retailers.
Pantaloon Retail is focusing its resources and
energies in expanding its chain of retail stores.
(Le. on the outbound logistics and customer serv.
ice part of the value chain) It plans to invest about
Rs 40,OOOmin 2008 and expand its different retail
chains as a part of a strategy to touch a top line
of Rs 3oo.000m by 20JO.I1. It will increase the
number of outlets of Big Bazaar from 50 to 100 by
next year. Pantaloon Retail is also chalking out a
massive foray into the wholesale agri-eommodities
business trade in India. with a business-tO"'business
(B2B) model similar to that ofWal.Mart's Sam's
Club across smaller towns and cities.2 The move is
part of a strategy to strengthen its back.end sup-
ply-chain and sourcing capabilities to reduce costs
and sharply scale up business volumes.
.ems
 Pantaloon Retail (India) Ltd. C-135

Kdn"bit 10 Organized Retail Value Chain

Raail is an industry which operates mainly on vis-a.-vis quality and price. And to be able to pro-
, las and low cost derived from supply chain vide quality product at low price, It will need to eD-
ditiucies, a concept which was pioneered by hance its operating efficiency. This is where supply
1IW-Mart and adopted by other retailers around chain efficiency is as critical as it constitutes the
.• v.orid to ensure survivaL Sourcing, storage, maximum operating cost to a retail. form. Let us
~aneul: of goods can be a key differentiator and take the example ofWal-Mart. Wal-Mart has bcen
,...,1•••
l ti ihaJ:'sthe reason why Reliance. with plans able to provide its customer with the lowest price
m e,"e5t Rs.80bn in supply chain is well poised on quality products because of its extremely ef-
_ dris fronl Working capital efficiencies can be ficient supple chain network. According to a 2006
-mired through sophisticated technology and study, Wal-Mart's distribution costs account for
.• can be a big source of competitive advantage. 3% of the revenue as against the industry average
Far example, Shopper's Stop with its IDA software of 6%. This enables Wal-Mart to offer its custom-
~'S an advantage over its peers. ers the best price and at the same time earn a bet-
ter profit margin. Pantaloon will need to replicate
such model to be competitive as Indian customers
KEY PERFORMANCE are highly price sensitive. This partly explains the •..
success of its Big Bazaar chains.
INDICATORS IN RETAIL
Customer service is the most critical area to main. Supply Chain Efficiency
min a sustainable competitive advantage in the re.
it is difficult to quantify supply chain efficiency as
tail space. This is because one of the most critical
it involves many players and a number of business
success factors in this business is providing a su- processes. Backward integration is all the more
perior shopping experience to the customers. This important for the Indian retailers because Indian
eotails recruiting and training of professionals and consumers are very much price-sensitive and ef-
prudent use of technology. ficient backward integration helps to cut the cost
~. Salesperson's time spent selling (percentage) drastically. Two points are emphasized here while
• Training hours per employee ranking Pantaloon and Reliance higher than the
• Customer re-visits other players-
• Cross-selling potential
• Pantaloon is integrated backwards in the ap-
• Point-or-sale service
• Customer complaints as a percentage of sales parel business, with its group company, Panta-
loon lndustries--supplying fabric. This enables
• IT Cost
it to have some control over the cost and quality
In order to solicit customers away from the con- of its apparel. It markets most of its products
venience of the next door Kirana Store, Pantaloon under private labels, thus offering products that
needs to provide the customers with superior value
 Pantaloon Retail (India) Ltd. C-231
ap-
Annexure }; Income Statement
and
llil- (Rs in Crore)

ish- - f..:~a?:~~i~.t:~~r.i:;;.:LTh.~~ti6:~~~~~_qua;i)4:h~~~
)3'~~~~~:::su~_~?:~;
, INCOME: ,", - ... ' • '.. , - -,' ,,. ,~".
..." ,,-.; ,~,:~
.•.•. ,.-
Sales Turnover 1,960.76 1,085.23. 658.31 444.83 _ 28?.29 .. '.~'
Excise Duty o 0.28 "J,::" 3.36 3.4 ,.;.,..,4.58.,:, ~..-
,. ~'.,..~""'-
Net sales
Other Income
1,960.76 1,084.95.
,,' ;
654.95 "' ..
441.43~ ..• ','>('280.71 .. -
'; ' " ")"-," , ',," ',,.., "

5.2 • 6.85..... -. "1.-78 ., 1.1 . 4..97. "-:.

Stad<. 'Adjustments '2$4.1S'" 127.69 29.19 .' 24.83~ ..•~ 23.73 .
Total Income 2.200.12 1,219.49 685.92 467.36 309.41
EXPENDITURE:
Raw Materials 1,477.58 828 4672 328.32 213.91
Power & Fuel Cosl 37.41 ;' 21.95 12.08 ~7.94';., .5.34
16.a-:.;.. ..
Employee Cost 112.08 SO.65 ',. 27.52 19.82
In Other Manufacturing Expenses 64.92 SS.41 27_11 16.87 4.35
~or Selling and Administration Expenses 321.82 158.16 88.99 54.8 • 39.76
the
Miscellaneous Expenses J9.07 968 5.43 3.24 2.26
Total Expenditure 2.052.88 1,124.85 628.33 •.. 427.97 285.44
tail
Operating Profit 14724 94.64 57.59 39.39 .. 23.97
Interest 34.53 28.19 24.39 19.41 12.22
,on
Gross Profit 112.71 68.45 33.2 19.98 11.75
Depl'ecialion 20.82 13.33 8.79 6.35 4.22
try
,on Profrt Before Tax 91.89 53.12 24.41 13.63 7.53
Tax 12.86 7.56 1.52 1.09 0.4
Deferred Tax f4.87 7.01 3.11 1.13 0.1
""ny Reported Net Profit 64.16 38.55 -.. 19.78 11.41 7.03
Extraordinary Items 0.73 0.82 10.02 --0.64-- o
OD- Adjusted Net Profit 63.43 37.73 '. - 19.76 12.05 '7.03
of Adjst. below Net Profit o o o o .1.7
on P & l Balance brought forward 66.51 38.08 34.25 24.89 19.56
~c 14.08 10.12 15.:9S . 2.05 o
Appropriations

P & L Balance carried down 116.59 66.51 38.08 34.25

- 1.82 .24.89
Dividend 6.72 5.5 2.87 o
Equity Dividend % 25 25 15 10 o
Earnings Per Share-Unrt Curr 23.52 17.17 10..14 6.15 .4.06

Book Value-Unit CUrT 196.02 99.33 49.58 ;.<~101.97 99.13

Source: CapitalirlEt Plus.

C~236 Crafting and Executing Strategy
cost 20-25 percent lower than branded items,
owing to an absence of advertising and other
related expenses.
• In Reliance Fresh, replenishments are done
twice a day, mainly from their own distribution • Vishal Retail Ltd. sells garments, home furnish.
centers. It is also investing in IT infrastructure
for better inventory management.
• Vishal Retail Ltd. has a factory in Gurgaon.
Haryana. This factory has more than 700 im~
ported machines that have a capacity to manu~
facture ISOOOO pieces a month. The factory
occupies. 80000 square feet of covered space.
But the limitation of this assumption is that, Pan-
taloon is a multi-fonnat retail chain. Also, Vishal
and Spencer'S are going for more than one format.
So, some additional information is incorporated Case Guideline Questions
whi~~.ril.tingthe players.
• lndivison-a private equity fund promoted by
Future Capital-a subsidiary of Pantaloon Re-
tail has invested Rs. 500 mn in fitness, beauty
and health finn Vandana Luthra Curls and
Curves (VLCC). The funds would help the
company to have 300 beauty and wellness cen-
tres across India.
• Pantaloon is in talks to form N with Burger
King of USA to open fast food restaurants in Q. 3 Draw a strategic group map for retail indust
the country. The N would be on a franchisee
model where- Pantaloon Retail would be the
master franchise of Burger King in 1Ji.dia.
•. Pan .lndia Food Solutions Pvt. Ltd. a JV com-
pany between Pantaloon Retail and Blue Foods
is planning to launch a chain of restaurants UD- Q.5 What could be the growth objectives ofPa
der the brand name "Yatra", the company plans
to have a chain of 15 such restaurants across
India.''':
• Reliance Retail has roped in Celebrity Fashion
to manufacture economy range of men's cloth
wear under the brand name "Spirit". The ap-
parel range would consist of shirts, trousers and
T-shirts. The brand would be exclusively avail.
able for Reliance Retail outlets.
ings, foods and household items.
• Spencer's product range includes-
• Food items
• Personal Care and Baby Care Products
• Home Care Products
• Office and Home Stationery
• Apparel and Fashion Accessories
• Electrical and Electronics
• Music, Toys and other Entertainment
Q. I (a) How is the retail industry evolving i
India? Should the players be proactive {
reactive to the evolutionary phases ofd:
different formats?
(b) What are the different fonnats for reta
and how do they differ from each other?
Q,2 Identify critical success factors for Pantalo(
(India) Ltd.
focused on the key parameters and positil
Pantaloon Retail (India) Ltd. on this map.
Q. 4 Analyze the company's internal resourc
and construct an audit of where the compa:
should focus in the emerging environment
taloon? In your opinion, the emergence
large retailers would affect the Pantalo
in what way? What could be the strate,
choices for the company?
C-238 Crafting and Executing Strategy

Annexure 2: Key Financials

(Rs in Crore)
""" 02(121'
. 285.29~; ~

23.97
. ~-t